Correlation Between Longleaf Partners and Third Avenue
Can any of the company-specific risk be diversified away by investing in both Longleaf Partners and Third Avenue at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Longleaf Partners and Third Avenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Longleaf Partners Fund and Third Avenue Real, you can compare the effects of market volatilities on Longleaf Partners and Third Avenue and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Longleaf Partners with a short position of Third Avenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longleaf Partners and Third Avenue.
Diversification Opportunities for Longleaf Partners and Third Avenue
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Longleaf and Third is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Longleaf Partners Fund and Third Avenue Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Avenue Real and Longleaf Partners is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Longleaf Partners Fund are associated (or correlated) with Third Avenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Avenue Real has no effect on the direction of Longleaf Partners i.e., Longleaf Partners and Third Avenue go up and down completely randomly.
Pair Corralation between Longleaf Partners and Third Avenue
Assuming the 90 days horizon Longleaf Partners is expected to generate 1.19 times less return on investment than Third Avenue. But when comparing it to its historical volatility, Longleaf Partners Fund is 1.08 times less risky than Third Avenue. It trades about 0.07 of its potential returns per unit of risk. Third Avenue Real is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,784 in Third Avenue Real on August 30, 2024 and sell it today you would earn a total of 845.00 from holding Third Avenue Real or generate 47.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Longleaf Partners Fund vs. Third Avenue Real
Performance |
| Timeline |
| Longleaf Partners |
| Third Avenue Real |
Longleaf Partners and Third Avenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Longleaf Partners and Third Avenue
The main advantage of trading using opposite Longleaf Partners and Third Avenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Longleaf Partners position performs unexpectedly, Third Avenue can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Third Avenue will offset losses from the drop in Third Avenue's long position.| Longleaf Partners vs. Versatile Bond Portfolio | Longleaf Partners vs. California Bond Fund | Longleaf Partners vs. Barings Active Short | Longleaf Partners vs. Astor Longshort Fund |
| Third Avenue vs. HUMANA INC | Third Avenue vs. Aquagold International | Third Avenue vs. Barloworld Ltd ADR | Third Avenue vs. Morningstar Unconstrained Allocation |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Transaction History module to view history of all your transactions and understand their impact on performance.
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